Forward planning remains critical
With such mounting concerns, one could be forgiven for dismissing long-term considerations as an abstract luxury. All of which begs the question: has COVID-19 torched the five-year plan? In short, absolutely not. Companies still need to lay out that long-term view. What the pandemic has done is simply change how the plan has to function.
With change now veering towards the fast and furious, the effective approach lies in more nimble tax planning, with aggressive attention paid to the shifting tax and political climate around the world. Central to this is the in-built potential to rapidly change direction, reflecting the agility required of the business overall in such a moving environment.
In fact, the tax strategy has to be embedded far more deeply into the broader business. Gone are the days when tax and finance were an unobtrusive back-office function. They must now sit squarely on the radar of the C-suite, who will require frequent updates on key information from tax and finance to be able to make the decisions that will steer the business.
As Michalak explains, “You can't have the key decision-makers sitting around talking about how they’re going to change the business model, and then at the tail end call tax and say: ‘Hey, here’s what we’ve decided to do – do you have any comments?’”
An adaptable tax and finance office, with a considered but flexible plan, can play a key role in improving profitability across the business. Reducing costs in the tax and finance function can help the company drive higher bottom-line profit. Meanwhile, the department can add value by way of tax insight and planning, and by answering questions about the tax implications of the various scenarios being modeled and adjusted on a regular basis.
It also reduces risk across the organization – with tax controversy and enforcement set to explode around the globe, having access to tax data, understanding and assessing the shifting state of play, and making sure the company is proactive in dealing with controversy will be key.
Future-proofing the tax and finance function
While these transformations are necessary, it doesn’t follow that they’ll be straightforward. Tax functions were already having to juggle multiple challenges before the pandemic. Respondents to the EY TFO survey revealed they spent more than a quarter of their time (27%) ensuring they were compliant; 22% in tax planning; 21% in being a business partner; 16% managing costs; and only 13% providing valuable insight to the wider organization.
Significantly, considering increasing digitization across the tax landscape, 65% said the biggest barrier to achieving their tax function’s purpose and vision is the lack of a sustainable plan for data and technology.
It’s unsurprising then, that with companies now facing the pressures of change and catching up to both the vast benefits and crushing demands of data and tech, many are examining the benefits of working with trusted external providers. Indeed, in the EY TFO survey, 73% of respondents said they are more likely than not to co-source some critical activities in the next 24 months in order to add value, reduce risk and decrease cost.
The co-sourcing model is becoming increasingly popular. Here, critical value-adding elements remain in-house, while the high-cost, high-risk or compliance-based elements of the work are outsourced to specialist partners.
“Could the average business build its own unique tax tech platform that can interface with 180 countries?” asks Weber. “Probably not. Working with a firm that has its own platform and shared services would enable it to operate far more cost-effectively, and to redeploy those dollars back to a most critical part of the business. Where does it want to be the best? Do that internally. Where does it want to be the most cost-effective? Outsource.” Many companies see the value of being a member of a multi-tenanted tax technology platform – whereby they leverage the incredible expense of building a global tax platform of a Big 4 by outsourcing their tax day-to-day operations.
Whether they choose to work with partners or go it alone, all businesses must now see their tax and finance planning as nimble and evolving. A plan committed to paper and simply left on the shelf to gather dust is no longer fit for purpose.
“That plan must now be a living document,” says Weber. “Companies still need a framework that outlines the critical path and the next three to five years, but it needs to be versatile and agile to adjust as they go. Understand that six months from now the plan could look very different. And in 12 months, even more so.”